## Facts

- A Delaware nursing-home project was structured with two entities: a corporation to operate the business and a limited partnership to construct and own the facility and lease it to the corporation.
- Courtland Manor, Inc. (the corporation) operated the nursing home; Courtland Manor Associates (the partnership) owned the facility.
- Leonard S. Leeds served as president/treasurer and de facto managing officer of the corporation and also as general partner of the partnership; William V. Leeds was a limited partner.
- Investors were told construction costs were expected to be about $900,000 and rent would be set at 12.5% of cost; a later written lease set rent at 12.5% of total construction cost, capped at $150,000 per year.
- Leonard executed the lease on behalf of the partnership while also acting for the corporation, placing him on both sides of the transaction.
- After the facility began operating, the corporation experienced cash-flow problems; Leonard was removed as president in October 1970.
- After new investors acquired control, the corporation (and nominally a stockholder/officer) sued Leonard, William, and the partnership for money damages.
- By trial, the claims were limited to: (1) alleged unfairness/self-dealing in lease terms, (2) alleged failure to disclose an FHA cash-flow analysis predicting operating shortfalls, and (3) related asserted fiduciary misconduct tied to the lease and financing.

## Issues

1. Whether a corporate fiduciary who stood on both sides of a lease transaction breached fiduciary duties by causing the corporation to enter an unfair lease and failing to prove the transaction’s fairness.
2. Whether alleged nondisclosure of FHA cash-flow projections and related conduct constituted a compensable breach of fiduciary duty.
3. Whether, given the timing and change in corporate control, the corporation was equitably entitled to recover money damages for the challenged transaction.

## Decision

- The Court of Chancery entered judgment for defendants and denied money damages.
- The court held the corporation was not in a position to recover the damages sought, making extended factual parsing unnecessary.
- On the merits of the narrowed theories, the court found no showing that Leonard extracted an unfair advantage through the lease.
- The court also found the alleged nondisclosure was not shown to have proximately caused compensable corporate loss.

## Legal Principles

- When a fiduciary stands on both sides of a transaction, the transaction is subject to close scrutiny and the fiduciary may bear the burden to show fairness; liability still requires proof of unfairness and resulting injury.
- Money damages for breach of fiduciary duty require causation and non-speculative proof that the challenged conduct produced the claimed loss.
- Equitable considerations, including shareholder awareness/acquiescence, timing of the challenge, and later-acquiring controllers’ posture, can limit a corporation’s ability to obtain monetary recovery for an earlier-approved risk allocation.

## Conclusion

The Court of Chancery rejected the corporation’s damages claims arising from a related-party lease and alleged nondisclosure, concluding the lease was not shown to be unfair, the asserted nondisclosure did not cause proven loss, and equitable considerations barred the monetary recovery sought after a change in corporate control.


Courtland Manor, Inc. v. Leeds, 347 A.2d 144 (Del. Ch. 1975)